COMMISSION STAFF WORKING DOCUMENT Country Report Latvia 2015 {COM(2015) 85 final} This document is a European Commission staff working document . It does not constitute the official position of the Commission, nor does it prejudge any such position.
Date: 2015-02-26
Institutions: European Commission
Subjects: Latvia, economic growth, economic recovery, economic reform, fight against unemployment, investment, macroeconomics, public debt, tax collection, teaching quality, youth unemployment













EUR-Lex - 52015SC0033 - EN











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52015SC0033

COMMISSION STAFF WORKING DOCUMENT Country Report Latvia 2015  {COM(2015) 85 final}     This document is a European Commission staff working document . It does not constitute the official position of the Commission, nor does it prejudge any such position. /* SWD/2015/0033 final */









Executive
summary  1
1.     Scene setter: economic situation and outlook  5
2.     Structural issues                                                                                                          13
2.1.   Fiscal policy, taxation and long-term
sustainability  14
2.2.   Education, skills, science and innovation  21
2.3.   Social and labour activation policies 25
2.4.   Healthcare system   29
2.5.   Energy independence, efficiency and transport
networks 31
2.6.   Public administration reforms 35
A1.   Overview table (CSRs, 2020 Targets) 37
AB.   Standard tables 41
LIST OF Tables
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entries found.
LIST OF Graphs
1.1      Latvia - Real GDP growth and
contributions                                                                                       3
1.2      Latvia – General government debt and
deficit                                                                                  4
1.3      Latvia – labour market indicators                                                                                                           5
1.4      General government spending on
health                                                                                            6
2.1.1.  Tax revenue to GDP, 2012  13
2.1.2.  Tax wedge for a single person earning 67% of the
average wage, 2013  13
2.1.3.  VAT gap, 2011  13
2.1.4.  Distributional effect of SSC rate reduction by
1pp   14
2.1.5.  Distributional effect of PIT rate reduction by
1pp   14
2.1.6.  Tax wedge reduction between 2013 and 2014  15
2.2.1   Share of low achievers in PISA 2012                                                                                                     20
2.2.2   Public expenditure per tertiary
student as a share of GDP per capita                                          20
2.2.3   R&D intensity projections                                                                                                                        21
2.3.1   Non-coverage of social benefits                                                                                                           23
2.3.2   Evolution of population and working
age population, 2014-2020                                                  24
2.4.1   Public health expenditure as % of
total health expenditure                                                           27
2.4.2   Self-reported unmet needs for medical
examination                                                                        27
2.5.1   Waste treatment methods                                                                                                                     30
LIST OF Boxes
1.  Economic surveillance process 7
 LIST OF Boxes
No table of contents
entries found.
LIST OF Maps
No table of contents
entries found.
Following a slowdown in 2014, Latvia’s economic growth is expected
to pick up again, reaching 2.9% in 2015 and 3.6% in 2016. Latvia's pattern is highly sensitive to external developments, where
the risks are on the downside. Domestic demand is projected to be the key
growth driver in 2015-16. Unemployment is estimated to fall from around 11% in
2014 to 9.2% in 2016 amid some rebound in labour demand. Wages grew by an
estimated 7% in 2014. General government deficit is projected to remain low at
around 1% of GDP in 2015 and 2016. Public debt is projected to decline to 35.5%
of GDP in 2016. 
3.6% in 2016. Latvia's pattern is highly sensitive to external developments,
where the risks are on the downside. Domestic demand is projected to be the key
growth driver in 2015-16, as the sharp depreciation of the Russian rouble is
adversely affecting exporters. Unemployment is estimated to fall from around
11% in 2014 to 9.2% in 2016 amid some rebound in labour demand. Wages grew by an
estimated 7% in 2014. General government deficit is projected to remain low at around
1% of GDP in 2015 and 2016. Public debt is projected to decline to 35.5% of GDP
in 2016. 
This Country Report assesses Latvia's
economy against the background of the Commission's Annual Growth Survey which
recommends three main pillars for the EU's economic and social policy in 2015:
investment, structural reforms, and fiscal responsibility. In line with the
Investment Plan for Europe, it also explores ways to maximise the impact of
public resources and unlock private investment. The Report reviews the policy
response since mid-2014, notably as regards the country-specific
recommendations issued by the Council in July 2014. The main observations and
findings of the analysis are:
·      
On fiscal policy and taxation, a high tax wedge for low-income earners remains a disincentive for the
formal employment and reduces demand for low-skilled workers. The tax revenue
potential of environmental and property taxes has not been used sufficiently.
Measures for improving tax compliance have high prominence in the 2015 budget,
but the level of tax avoidance is still high. Further plans for increasing the tax
ratio to GDP are not well articulated. Medium-term expenditure plans assume
limited resources or even discontinuation of some public services, putting
their credibility at risk in the face of mounting spending pressures.
•     On social policy, labour activation and healthcare, reforms
to social assistance benefits have not advanced, although a significant amount
of analytical and planning work has been undertaken. Social expenditure has a limited
impact on poverty reduction in Latvia due to overall low levels of spending and
the dominance of insurance-based benefitsAccording
to national statistics, in 2013 . Labour market outcomes have improved both for young people and
the long-term unemployed. However, young people with low levels of education
and no work experience remain in a challenging situation. The coverage of
active labour market measures remains too low and a career guidance system remains
weak. Under-financing of the health care system hinders access to healthcare
for vulnerable groups. 
•     On education, skills, science and innovation, Latvia intends
to introduce an internationally-recognised higher education accreditation
system, implement a financing model that rewards quality, promote
internationalisation, and increase the proportion of university graduates in
science, technology, engineering and mathematics. On vocational education and
training, quality and offer of apprenticeships is not sufficient. In science
and innovation, steps are being taken to target funding to research
institutions that are internationally competitive. Latvia’s business R&D
intensity is one of the lowest in the EU: together with insufficient policies
to foster cooperation between science and businesses, this is hindering the
development of knowledge-driven economy.
•     On energy independence and efficiency, Latvia has fully
opened its electricity retail market. However, electricity connections with
Estonia are inadequate and challenges remain to ensure the smooth functioning
of the regional electricity market. Latvia's gas market liberalisation and transmission
system operator unbundling is to be completed by 2017. Important regulatory and
ownership issues need to be dealt with in advance of the deadline. Latvia has
delayed implementation of the EU energy efficiency scheme and energy and carbon
intensity is significantly higher than the EU average, particularly in the household
and transport sectors. 
•     As for the judiciary and public administration, there
has been substantial progress on mediation and arbitration frameworks. However civil,
criminal and commercial proceedings in lower courts are still too long, especially
in corruption-linked cases, and there are loopholes in the application of
insolvency law. The state-owned enterprise management reform has finally been adopted;
however, there is uncertainty about the timing and the ambition to adopt the necessary
secondary legislation. The quality and capacities of public administration are
affected by relatively low remuneration levels, especially for senior staff. Proposed
measures to strengthen the institutional and financial independence of the
Competition Council have been insufficient. 
•     Latvia's level of investment is low, particularly in the energy
and transport infrastructure sector. Low investment can reduce
competitiveness and growth potential, weighing on productivity and capacity to
produce jobs. 
Overall, Latvia has made some progress
in addressing the country-specific recommendations issued by the Council in
2014. The reform process has regained momentum since
the parliamentary elections. The parliament has passed into law a number of
important bills left over from the previous parliament, most notably on construction,
public procurement, insolvency, state-owned enterprise management and the
Single Development Institution. The authorities have taken action to improve
the judiciary, to intensify the fight against tax avoidance, and to target
science funding towards internationally competitive institutions. The
electricity market was fully liberalised in January 2015. Limited progress was
made on reforming social assistance and tackling inadequate healthcare access.
Some progress was made on implementing higher education and science reforms and
improving the availability of quality work-based training. 
The Country Report reveals the policy challenges
stemming from the analysis, namely:
·      
Labour tax reforms are not sufficiently
targeted at reducing the high tax wedge on low-income earners. Property and environment taxes have a potential to support a
growth-friendly tax shift away from labour taxation.
·      
The credibility of the medium-term budgetary plans
is hampered as revenue and expenditure measures are not spelled out. Lack of clarity on revenue plans affects timely decision making on spending
priorities and progression of structural reforms. 
·      
There is room to improve the supply of skills
to increase labour productivity. Higher education suffers
from inadequate public funding and a lack of impartial study field accreditation.
There is a lack of attractiveness for the vocational education and apprenticeships.
Not properly targeted public funding to internationally competitive
institutions negatively affects research and innovation system outcomes. 
·      
Important challenges are the capacity of the
social safety net, the access to healthcare for vulnerable groups and a sufficient
labour supply. The social safety net is not
sufficiently strong, pension adequacy is at risk and the financing and coverage
of active labour measures is inappropriate. On health, waiting times for
diagnostics are high, there is a lack of sickness prevention and health
promotion, and the health care workforce strategy is not yet implemented. 
·      
For the full opening of the gas market from
April 2017, regulatory and ownership issues would need to be settled over the
coming months, in order to ensure predictability
and a smooth transition. Implementation of the EU energy efficiency scheme
relies on rolling out ambitious energy efficiency projects in buildings,
heating systems, and low-carbon transport.
·      
Time needed to resolve administrative, civil
and commercial cases is excessively long. The role
of the Judicial Council in implementing judicial reforms is not strong enough. The
state-owned enterprise management reform is not complete, a public
administration reforms is not planned the capacities of the Competition Council
are not sufficiently strong.
Growth outlook 
Economic growth weakened to 2.4% in 2014
from 4.2% in 2013. The slowdown reflected the
uncertain external environment, in particular the steep depreciation of the
Russian rouble and risks from the conflict between Russia and Ukraine. These
uncertainties have weakened business sentiments and investment, especially in
the export sector, and have offset an initial positive momentum stemming from
the euro adoption. In 2015, the 
economy is facing both positive and
negative external shocks. While the recent steep drop in oil prices is
supporting domestic consumption, exporters have been hit by the depreciation of
the Russian rouble. Overall, economic growth is expected to improve to 2.9% in
2015, and 3.6% in 2016. 
Domestic demand is projected to be the
key growth driver in 2015-16. After some slowdown
in 2014, the latest data show that private consumption is accelerating again,
supported by wage growth and cheaper oil. Fuels account for about 6% of
household spending and therefore the recent downward trend in oil prices has
given a significant boost to consumers' disposable income and to demand.
Investment growth is expected to improve slightly in 2015 and more
substantially in 2016, based on the assumption that geopolitical risks will subside.
 Graph 1.1:     Latvia - real GDP growth and contributions 
 Source: European Commission 
The sharp depreciation of the Russian
rouble is hurting exporters. About 11% of the
country's exports go to Russia. There is also some indirect exposure through
other trading partners affected by the depreciation of the rouble. All in all,
imports are set to rise faster than exports in volume terms but the current
account deficit is likely to remain relatively small due to terms of trade
gains.
Employment remained broadly flat in 2014
as the economic slowdown and external demand risks weakened labour demand and a
shrinking labour force reduced labour supply. Real
wages increased by nearly 15% on a cumulative basis in 2013-14 on the back of
solid economic recovery since the crisis and the national minimum wage hikes.
Nevertheless, unemployment is expected to keep falling, from around 11% in 2014
to 9.2% in 2016 amid a further contraction in the labour force and some rebound
in labour demand. However, the projected increase in unit labour costs may pose
a risk to Latvia's competitiveness in the medium term. The national minimum wage
increases. While improving work incentives, it may also weaken demand for
low-skilled labour in regions with low productivity.
Inflation is expected to remain low at
0.9% in 2015 and 1.9% in 2016, reflecting oil price effects. The disinflationary impact will be mostly through fuel and
transport services in 2015, while lagged effects to natural gas and heating
prices will affect the 2016 outcome as well. Nevertheless, inflation in 2015 is
set to exceed the reported rate of 0.7% in 2014 as service prices are pushed up
by the projected strong growth in wages. In addition, the deregulation of
household electricity prices from January 2015 triggered a one-off hike after a
long price freeze on the market.
Fiscal
policies 
The authorities demonstrate strong commitment
to fiscal targets with the medium-term objective
for a structural deficit of 1% of GDP being the main anchor for budgetary
planning. The Fiscal Discipline Law entered into force and the Fiscal
Discipline Council was created on 1 January 2014. Nevertheless, fiscal
performance is still facing challenges. In particular, government revenues are
exposed to economic risks stemming from the unstable geopolitical situation and
to tax compliance risks linked to the large share of the shadow economy. 
 Graph 1.2:     Latvia – general government debt and deficit 
 Source: European Commission 
Fiscal policy is constrained by limited
fiscal space for boosting investments in sectors where private incentives are
insufficient. On the one hand, the government is
committed to maintaining a low-tax environment to support private investment. On
the other hand, large needs for spending on social protection, healthcare and
education restrain government resources to invest in infrastructure and
R&D, which are lagging behind EU standards. Facing external security risks,
the government has recently committed to increasing its defence budget. This further
limits its capacity to boost investment in other sectors.
The cost of debt refinancing has dropped
substantially, helped also by Latvia's adoption of the euro in 2014. Latvia has favourable access to international bond markets. In
January 2015, Latvia repaid EUR 1.2 billion to the European Commission, reaching
a total repayment ratio of 75% of funds received under the financial assistance
programme in 2009-11. Latvia has successfully completed the post-programme
surveillance procedure. Future debt refinancing needs have decreased compared with
previous years.
Shadow
economy 
The authorities recognise the need to
tackle tax avoidance and thus unlock tax revenue potential. Compared with the Baltics and other Member States, the shadow
economy accounts for a relatively large proportion of Latvia’s economy and there
is a large gap between the country’s potential tax revenue under its existing
tax laws and actual revenue collected. This is partly due to occasional tax
avoidance by individual companies and households, but is also, and to a
significant degree, the result of organised criminal activities (tax avoidance
schemes, counterfeiting, smuggling, etc.). The situation worsened significantly
during the crisis, but has improved since, aided by the authorities’ efforts to
improve tax administration and cover gaps in the taxation system. The State
Revenue Service is doing more risk analysis, using existing and new registers to
limit possibilities to set up and operate fraudulent companies.
The 2015 budget relies on effective
implementation of new improvements in the tax administration system. Further measures are planned, most notably changes to the public
procurement law to be introduced in 2015, which require the main contractors
and sub-contractors to have no tax debts and to have wage levels comparable to
the industry average. In response to these improvements, the Latvian
authorities report that organised crime groups tend to use more foreign
residencies, often changing location and using sophisticated IT solutions. This
complicates investigations and requires greater cooperation with international
counterparts. In this context, inadequate resourcing and training of the
professionals in tax administration and judiciary hampers their capacity to
solve complex financial crimes.
Social
assistance system 
Benefit adequacy and coverage is low and
activation and conditionality on benefit recipients is weak. While significant amount of analytical work was undertaken, there
has been no progress on the ground. Implementation is planned for 2017 only and
the planned changes are not backed by budgetary plans. On a positive note, the
new social policy monitoring information system has been launched, making it
easier to monitor social assistance benefits and services.
Labour
market policies
The labour market situation is continuing
to improve. Active labour market measures are being
redesigned to reduce the overall share of public works and to increase the role
of non-governmental organisations in implementing customised support such as
mentoring and counselling for the long-term unemployed. However, tapping the
full labour force potential of the pre-pension age unemployed, people with
disabilities and social assistance benefit recipient will remain important. On
outreach to youth not in employment, education or training, guidelines for
mentoring and training are being drawn up and cooperation networks with
municipalities are being established. However, visibility of the Youth
Guarantee among the target groups remains low and the career guidance system is
fragmented.
 Graph 1.3:     Latvia – labour market indicators 
 Source: European Commission 
Healthcare
system
Access to healthcare is hampered by low
public healthcare financing and high out-of-pocket payments, leaving a large proportion of the population with unmet healthcare
needs. The accessibility in hospital care leaves room for improvement,
co-payments for pharmaceuticals are relatively high; there are shortages of healthcare
access regionally and for the vulnerable groups, including long waiting times
for specialist consultations and oncological diagnostics;  sickness prevention
and health promotion is insufficient, and performance incentives for general
practitioners are lacking, deploy e-health applications are not sufficiently
deployed a health care workforce strategy to address ageing, low salaries, and
up-skilling is missing. Also, there is some scope for efficiency gains as
regards pharmaceutical purchases and hospital transfers: e.g., related to the use
of the diagnosis-related-group financing system.
 Graph 1.4:        Government expenditure on health as % of GDP (EU average and percentiles 25, 75; LV) 
 Source: WHO Health for All Database 
Education
reforms 
The authorities are planning to create
an independent national accreditation agency in 2015. The agency is to be included in the European Quality Assurance
Register for Higher Education no later than 2018, i.e. before the next
comprehensive accreditation round, which is scheduled for 2019. Proper control
of the quality of the education on offer in public and private institutions has
so far been lacking (only 30% of study places are publicly financed). Based on
the recommendations from a recent World Bank study, a new higher education
financing model supporting quality-criteria is being developed and some
performance-oriented funding will be piloted in 2015. Other challenges include
the governance of higher education institutions, a restricted use of EU foreign
languages in teaching, and the access to the student-loan system. 
While the consolidation of the VET
network is in its final stages, the curricula reform needs more emphasis. Less than half of the profession standards, planned modular
programmes, and contents of the qualification exams have been updated and the
reform is stretched out until 2023. The quality of work-based learning and
apprenticeship type schemes, especially in technology and engineering remains a
challenge. In 2015 Latvia will need to finalise a comprehensive vocational
education and training law. It will also need to finalise secondary legislation
on work based learning and formalised involvement of sectoral councils.
Motivating companies, especially SMEs, to provide quality work-based learning
placements remains problematic.
An independent external evaluation of
the relevance of Latvia's scientific output has
been published by the Nordic Council and seems to be serving as a basis for
determining which institutions are to be merged or shut down and which are
eligible for more EU and national funding. These are positive developments. 
Energy
policies
After several delays, full electricity
market opening took place on 1 January 2015. Prices
on the wholesale market in the Latvian-Lithuanian price zone remain on average
higher than in Estonia and less stable. The Estonian-Latvian connection is
still heavily congested and no changes are to be expected in 2015. To alleviate
the situation, Transmission System Operators will be offering more transmission
capacities. By the end of 2015 the situation is likely to improve as Nordbalt,
the Swedish-Lithuanian interconnector, will be completed, thus bringing lower
Swedish prices to the Latvian-Lithuanian price zone and relieving congestion on
the Estonian-Latvian connection. 
Latvia's 'emergent gas market' exemption
has expired and the respective legislation to address obligations has been
partly put in place. Third party access rules for
the transmission grid and the Incukalns gas storage facility need to be laid
down in secondary legislation. Latvia's exemption as an isolated gas market
still stands, so Transmission System Operator unbundling will need to be
completed by April 2017, making the monopoly's transmission and distribution
infrastructure accessible to new supplies. 
Latvia's progress towards the 2020
renewable energy target has slowed. At the same
time, a moratorium on granting new permits for the renewable energy support scheme
will continue until 2016. There are concerns about high reliance on imported gas
in district heating, especially in Riga.
Transportation
infrastructure 
Some progress has been achieved on the Rail
Baltic European-gauge railway infrastructure project, which is subject to funding from the Connecting Europe Facility. In view of
political sensitivities, there has been little action to improve Riga and
Ventspils ports' operational management, transparency, and regional
competitiveness, as supported by 2014 World Bank and State Audit analysis. 
In 2014, around half of roads in Latvia
were in a poor condition. The 2014-20 road funding
programme relies mostly on the EU funding. It is therefore important to develop
a viable long-term funding mechanism with additional national financing. The
number of road fatalities per million inhabitants remains one of the highest in
the EU. 
Judiciary
The efficiency and quality of the
judicial system has improved during the last year, though challenges remain. The current codes of civil, administrative and criminal procedures
hamper a fast progress of cases. The insolvency law is not properly implemented,
hampering the accountability of insolvency administrators. A comprehensive
human resource policy is lacking and there is room to strengthen the role of
the Judicial Council and judges in implementing judicial reform. There has been
good progress on reforming arbitration courts and mediation, but room for further
steps exists. Significant EU funding will be allocated for the training of investigators,
prosecutors and judges in the 2014-20 financing period.
Public
administration 
In 2014 the Cabinet of Ministers adopted
a Public Service Law. However, the law may face
significant resistance in parliament and local government will be exempted from
it. Centralised selection of senior public officials is due to start in September
2015. Insufficient pay compared to the responsibilities and private sector
salaries result in relatively high staff rotation: this has a negative effect
on the public administration quality and capacities.
The framework law on the management of state
owned enterprises was adopted in October. The actual
implementation, including adopting the necessary secondary legislation and putting
in place a centralised state owned enterprises manager, is however still  due.
There has been no progress on the
Competition Council's proposals for amendments to the Competition Law. Under
the Competition Council's proposal, it would have
greater institutional and financial independence to take effective action
against public bodies restricting competition and to prevent experienced staff
from leaving. 
Box 1: Economic
surveillance process
The
Commission’s Annual Growth Survey, adopted in November 2014, started the 2015 European Semester,
proposing that the EU pursue an integrated approach to economic policy built
around three main pillars: boosting investment, accelerating structural reforms
and pursuing responsible growth-friendly fiscal consolidation. The Annual
Growth Survey also presented the process of streamlining the European Semester
to increase the effectiveness of economic policy coordination at the EU level
through greater accountability and by encouraging greater ownership by all
actors.
This
Country Report includes an assessment of progress towards the implementation of
the 2014 Country-Specific Recommendations adopted by the Council in July 2014.
The Country-Specific Recommendations for Latvia concerned public finances and taxation, social assistance and
healthcare, education and research, energy connections and public
administration and judiciary.
 Table 1.1:       Key economic, financial and social indicators - Latvia 
   
 1 Domestic banking groups and stand-alone banks. 2 Domestic banking groups and stand-alone banks, foreign-controlled (EU and non-EU) subsidiaries and branches. 3 Real effective exchange rate (*) Indicates BPM5 and/or ESA95 Source: European Commission; ECB 
 Table 1.2:       Macroeconomic Imbalances Procedure scoreboard indicators 
 (1) Figures highlighted are those falling outside the threshold established in the European Commission's Alert Mechanism Report. For REER and ULC, the first threshold applies to euro area Member States. (2) Figures in italics are calculated according to the old standards (ESA95/BPM5). (3) Export market share data: total world exports are based on the fifth edition of the Balance of Payments Manual (BPM5). Source: European Commission 
Fiscal Policy
The authorities are committed to a
prudent level of government borrowing. The 2015
budget targets a nominal deficit of 1% of GDP. The new spending measures of
0.6% of GDP are largely financed from a revenue-effort of 0.5% of GDP. The main
thrust of the revenue effort is concentrated on improving tax compliance
through better information exchange between government bodies and addressing
some rigidities in excise taxation. Moreover, the authorities expect a positive
revenue effect from the January 2015 increase in the national minimum wage from
EUR 320 to EUR 360 and have decided to maintain the requirement for the state-owned
enterprises to pay 90% of their dividends to the government in 2015. The main
spending increases are in the health, education, defence and agriculture
sectors. The increase in the national minimum wage implies wage increases for
low-paid state employees.
The authorities are committed to reducing
the fiscal deficit to below 1% of GDP over the coming years. A nominal deficit of 1% of GDP is targeted in 2015, followed by 0.9%
in 2016 and 0.7% in 2017. However, the underlying fiscal situation has deteriorated,
due the softening of economy activity leading to lower tax revenue. This
implies reduced fiscal space for the many public service needs, which are not
fully reflected in the medium-term expenditure plans.
Medium-term expenditure plans remain
tightly constrained, putting their credibility at risk in the face of mounting
spending pressures. After a period of tight budget
control and expenditure cuts during the crisis, the authorities have allowed
some nominal expenditure increases in priority areas and resumed partial pension
indexation in 2014. However, the expenditure plans still assume that a wide
range of existing government programmes will be discontinued and that only the minimum
level of public services will be maintained. This will mean the compression of
the government expenditure relative to GDP, in particular in capital spending, the
wage bill and public purchases of goods and services. Moreover, measures aimed
at expanding the social safety net, ensuring adequacy of pensions and competitive
wage levels in the public sector and facilitating reforms in health and
education are not fully accounted for in the medium-term expenditure plans.
Decisions are therefore postponed to the time of the annual budget preparation.
In several cases this might mean that some reform priorities never obtain financing
or are overruled by short-term interests. 
Taxation
Latvia has a high tax burden for
low-income earners and tax compliance is weak. The
overall tax burden of 28% of GDP in 2012 is well below the EU average of 40% (Graph
3.1.1). The tax system is characterised by limited
taxation of capital and high reliance on consumption and labour taxes in terms
of total revenue. The tax wedge for low-income earners, standing at 43.1% for
single persons earning 67% of the average wage, was above the EU average of
36.6% in 2013 (Graph 3.1.2). Within Latvia's flat-rate tax
system, the only element of progressivity is the basic personal income tax
allowance, which is one of the lowest in the EU, including the Baltic States. The
high tax wedge for low-income earners also undermines employment in the formal
economy. Undeclared work was estimated to account for 13% of GDP in 2013. ([1]) A Eurobarometer ([2]) survey shows that the prevalence of envelope (underreported) wages
in Latvia is the highest among the Baltic States and in the EU as a whole,
while working without contract is less common. Tax avoidance also affects VAT
revenue: the estimated gap between potential and actually collected VAT revenue
was almost 5% in 2011, which was among the highest rates in the EU (Graph 3.1.3). 
 Graph 2.1.1:   Tax revenue to GDP, 2012 
 Source: Taxation trends in the European Union, 2014 
 Graph 2.1.2:   Tax wedge for a single person earning 67% of the average wage, 2013 
 Source: Taxation trends in the European Union, 2014 
 Graph 2.1.3:   VAT gap, 2011 (1) 
 (1) A difference between the theoretical VAT liability and the actual VAT revenue collected. Source: Study to quantify and analyse the VAT Gap in the EU-27 Member States, European Commission, 2012 
Latvia has made some progress in
reducing the tax burden, but not all measures are targeted at low-income
earners. In 2014, an increase in the basic personal
income tax allowance and the allowance for dependants reduced the tax wedge for
households with children significantly. At the same time, all income groups
benefitted from a reduction by 1 pp. of the combined social security
contribution rate. ([3])
Nevertheless, the tax wedge for single earners without children remains high
and acts as a disincentive for getting low-wage workers into formal employment.
In 2015, the personal income tax rate was reduced from 24% to 23% and the
national minimum wage rose from EUR 320 to EUR 360 per month. However, an
across-the-board personal income tax reduction implied only a marginal gain
for low-wage earners, while being more beneficial to middle and high-income
earners (Graph 3.1.4), for whom the tax wedge is already
relatively low. The 2014 social security contribution rate reduction had a
more equal income distribution (Graph 3.1.5) ([4]), while fiscal costs were similar to the personal income tax
reduction ([5]). 
 Graph 2.1.4:   Distributional effect of PIT rate reduction by 1pp 
 Source: European Commission, Joint Research Centre, based on the EUROMOD model 
 Graph 2.1.5:   Distributional effect of SSC rate reduction by 1pp (1) 
 (1) Divergences for the second and sixth decile relative to other income groups are related to (i) shifts in composition of the decile (e.g. moving from the first decile to the second and thus lowering the average for it) and (ii) loosing eligibility to means-tested benefits. Source: European Commission, Joint Research Centre, based on the EUROMOD model 
Latvia announced a plan for a
progressive personal income tax basic allowance in 2016. The intention is to introduce progressive differentiation of the personal
income tax basic allowance for three income thresholds, e.g. increasing the basic
allowance for low-income earners, keeping the allowance for middle-income
earners unchanged and setting it at zero for high-income earners. This measure
would increase the progressivity of labour taxation, but the full extent of the
effect on the tax wedge for low-income earners is not yet clear. In general, an
increase in the basic personal income tax allowance would decrease the tax
wedge for low-income single earners. ([6]) 
The increase in the national minimum
wage supports low-income earners and could increase incentives to work, but may put at risk the viability of some low-wage jobs,
especially in regions with lower productivity. The minimum wage increase is also
seen as a revenue-increasing measure because it reduces the prevalence of
envelope wages. ([7]) However,
some low-wage jobs may become non-viable or working time may be underreported
thus circumventing the measure. Around 29% of registered employees earn a minimum
or below minimum wage (including 6% working without a wage) ([8]) and are likely to be affected by the minimum wage increase. The
minimum wage increase does not change the tax wedge, but allows low-income
earners with dependents to benefit from tax allowances through a higher
take-home wage. A single earner on the minimum wage with two children does not
pay personal income tax and still has unused allowances. ([9]) 
 Graph 2.1.6:   Tax wedge reduction between 2013 and 2014 
 Source: Latvian Ministry of Finance 
The authorities want to raise the
tax-to-GDP ratio to 30% of GDP. However, under the
current plans the tax burden is projected to fall from around 28% of GDP in
2015 to around 26% in 2017. To meet the target, the authorities put strong
emphasis on improving tax compliance, while leaving open a second option of
increasing taxes on consumption, natural resources and property. The tax
revenue target of 30% of GDP is important for the sustainable financing of
public services, as public spending in several sectors was reduced to a minimum
during the fiscal adjustment period. 
Improving tax compliance is among the authorities'
top priorities. The 2015 budget included a number
of measures to improve tax compliance, amounting to some 0.2% of GDP. Moreover,
the Latvian tax administration is active in fighting tax fraud and avoidance
schemes set up by criminal groups. The tax administration is conducting sectoral
examinations, ensuring a balanced improvement in tax compliance in problematic
sectors. Although recent indicators on the undeclared economy suggest
an improvement as compared with the economic crisis period, the level of
tax avoidance is still high relative to that in other Member States. Achieving
the planned revenue targets depends on the efficiency of the tax administration
and broad public acceptance of culture of paying taxes. Resources and training
of the professionals in the tax administration and judiciary seem not fully
adequate to strengthen their capacity to solve complex financial crimes.
Sanctions applied by the judiciary in tax fraud and evasion cases seem
inadequately dissuasive.
Environmental taxes have significant
potential to generate revenues and facilitate resource efficiency. Environmental tax revenue accounted for 2.4% of GDP in 2012, with
the biggest contribution coming from taxes on transport fuels (1.8% of GDP).
Other taxes on pollution, resource use and transport (excluding transport
fuels) amounted to 0.58% of GDP in revenue. Changes in excise duties and
environmental taxes introduced in 2014 had a modest fiscal effect and limited impact
on producer and consumer behaviour. Very small changes in the 2015 budget focus
only on reducing rigidities in excise taxation, including a decrease in fuel-related
energy subsidies. Taxes relating to waste management appear ineffective in
diverting waste from landfill to recycling. Moreover, there is no indexation of
excise or environmental taxes, and their real value and impact will fall over
time.
Existing tax measures appear to be
insufficient to improve energy efficiency in the transport sector. Transport accounts for the largest proportion of Latvia's greenhouse
gas emissions (26% in 2012). Even though vehicle registration tax is linked to
CO2 emission, new cars in Latvia had the highest CO2 emission
per km in the EU in 2013. Only around 40 electric vehicles were registered in Latvia
in 2014. Corporate passenger cars continue to benefit from VAT deductions on both
their purchase price and operating costs ([10]). 
A 2015 study ([11]) suggests that environmental taxes could generate substantial
additional revenue in Latvia. Ensuring an equal
treatment of all fuel types based on their energy content and emission levels could
generate 0.8% of GDP in revenue by 2025. Increased taxation of the use of resources,
water and of waste management and air pollution could generate an additional
0.4% of GDP in revenue in 2017, rising to 0.5% in 2025. The landfill tax for
municipal waste is one of the lowest in the EU: increasing it would facilitate
recycling and divert waste from landfills. 
Property taxes also provide scope for a
growth-friendly tax shift. Property taxes accounted
for 0.9% of GDP in revenue in 2012, well below the EU average of 2.3% of GDP. Since
2013, local governments have been able to set annual property tax rates from
0.2% to 3% of the value depending on the property type and use ([12]).Local government can also grant tax rebates to vulnerable social
groups. Decentralised property taxation at local government level poses
difficulties for efficient tax administration: e.g., some local governments
engage in tax competition attracting new residents and gaining from their
income tax payments. The transparency of tax administration is low and the
reports from the State Control have revealed shortcomings in accounting for all
properties, the application of tax rates that were lower than mandated, reluctance
to deal with tax arrears and insufficient use of public registers to check
eligibility for tax rebates. Cadastral values used for property taxation are
annually updated based on market values. However, given the steep increase in
the updated cadastral values, the authorities are considering capping property
tax increases for land and forests in 2016. 
Long
term sustainability
Latvia does not appear to be facing
medium- and long-term sustainability challenges.
Government debt (38.2% of GDP in 2013) is below the Treaty ([13]) threshold of 60% of GDP and it is projected to stay broadly stable
until 2030, assuming no further policy changes are made. In the long-term,
age-related public expenditure is projected to fall as the funded pension schemes
will increase their share. However, the adequacy of future pensions is
estimated to decline ([14]), thus
representing a risk of current policies being reviewed, which could have an
impact on future sustainability. 
The privately managed/funded pension
scheme will gradually take over part of the pension obligations from the public
pension scheme and reduce risks to future pension
sustainability. In order to finance future public expenditure related to
population ageing, Latvia increased contributions to the funded pension scheme
from 2% to 4% of gross wages in 2013, and to 5% in 2015.  In 2016, the rate
will rise to 6%. The retirement age went up in 2014 by three months from 62
years and will go up by a further three months each year, reaching 65 years in
2025. However linking the retirement age or benefits with life expectancy is
not intended. The minimal contribution period to secure a full pension was
increased from 10 to 15 years (expected to reach 20 years by 2025).
Fiscal
framework
 
The implementation of the domestic
fiscal framework is well advanced. The fiscal discipline
law entered into force in 2013 and the Fiscal Discipline Council was created on
1 January 2014. The Medium-Term Objective is the cornerstone for budgetary
planning, including for the 2015 budget ([15]). 
The Fiscal Discipline Council has started
working. The Council found that the 2015 budget complied
with the fiscal rules and was based on a plausible, although slightly
optimistic, macroeconomic forecast. The first fiscal monitoring report includes
several recommendations to the government, in particular in the area of
taxation. The Council supports the government's objective of a tax-to-GDP ratio
of 30% of GDP to ensure sustainability of public services, and agrees with the
significant revenue potential that could be obtained by containing the shadow
economy. The Council has issued one irregularity report and one opinion to the
government and the parliament, flagging decisions that appear to breach the fiscal
discipline law. The Council puts its reports and the authorities' replies on
its website. ([16])

There is some ambiguity around the requirement
in the fiscal discipline law for an independently endorsed macroeconomic forecast. The main macroeconomic developments underpinning the budget are agreed
with the Bank of Latvia, which is an independent institution. However, the
agreement itself and the underlying justifications are not public. Other
experts from the Ministry of Economics, commercial banks and international
organisations are also consulted on the forecast. In addition, the Fiscal
Discipline Council expresses its view on the macroeconomic projections underlying
the budget, providing thus some ambiguity on the respective roles of
institutions.  
Investment Labour productivity currently stands
at 57% of the EU average.  in human capital
plays Labour productivity currently stands at 57%
of the EU average. a crucial role in achieving convergence
with the average EU labour productivity level, (Latvia's
productivity stands at around 60% of the EU average) ([17]). Latvia has made progress over recent years in improving
the supply of skills, as borne out by improving Programme
for International Student Assessment scores under the OECD
Programme for International Student Assessment (above
above International Student Assessment OECD Programme for International Student
Assessment Programme for International Student Assessment OECD Programme for
International Student Assessment OECD Programme for International Student
Assessment OECD Programme for International Student Assessment PISA) OECD Programme for International
Student Assessment OECD Programme for International Student Assessment, rising tertiary attainment and a Programme
for International Student Assessmentdeclining early
school leaving rate. A number of challenges remain, such as the low proportion of
employment in knowledge-intensive sectors, low adult participation in lifelong
learning and poor provision of in-company training ([18]). Employers report serious difficulties in finding employees with
the right skills ([19]). There is
also evidence of bottleneck vacancies in sectors such as metal processing,
machinery, IT, road hauling, food processing, health care and textiles ([20]). However, the lack of the necessary skills may not be the only
factor, as difficulties in filling vacancies may also be linked to poor working
conditions (such as salaries and training). Replacement demands may result in
future labour shortages emerging in healthcare, science and engineering ([21]). 
Latvia’s tertiary education attainment
rate has increased to 40.7% in 2013, which is well
above the EU average of 36.9%. Women clearly outperform men: 53.1% as compared with
28.3% in 2013. While it has increased significantly in the last five
years, the proportion of university graduates in the science, technology,
engineering and mathematics is below the EU average (18.8% compared with 22.8%
in 2012). Encouragingly, the authorities have continued a gradual reallocation
of publicly-funded study places to prioritise science, technology, engineering
and mathematics over social sciences. Also, according to the Ministry of
Education Strategy for 2014-2020, a diagnostic test in physics and chemistry
for the eighth to eleventh grade pupils is to be introduced from 2016 on pilot
basis, with mandatory exams for high school graduates to commence in 2017.
School outcomes are rather positive on
average but they mask large gender and regional differences. While the overall early school leaving rate has been decreasing
since 2008 and reached 9.8% in 2013, there were only 5.8% school-leavers among
girls compared with 13.6% among boys. Similarly, the performance of 15-year-olds’
in the 2012 PISA in reading, mathematics and science is above the EU average, although
girls significantly outperform boys in reading and science (Graph 3.2.1).
PISA 2012 results also show significant regional differences. Schools in the Riga
area perform close to the best EU countries, while schools in rural areas lag
behind ([22]). Also, there
have been some concerns as regards the quality of teaching in bilingual public
schools, as teachers there sometimes have limited knowledge of the Latvian
language ([23]).  
 Graph 2.2.1:   Share of low achievers* in PISA 2012 
 *15 year-olds performing below PISA level 2 Source: OECD 
The main challenges in higher education are
an inadequate public funding system, low levels of internationalisation and a lack
of internationally-approved accreditation. Public
expenditure per student is among the lowest in the EU, and the present
financing model lacks performance-oriented components (Graph 3.2.2). On a
positive note, a new quality-targeting financing model is being developed, based
on the recommendations from a recent World Bank study ([24]), and some performance-oriented funding will be piloted in 2015.
While the number of international students (including the Erasmus programme)
increased by 15% in 2013-14 and represents 5.9% of the total number of students,
the present financing model provides no incentive for internationalisation. One
of the reasons why foreign teaching staff is not being attracted is that there
are specific language requirements for professorships Finally, accreditation
procedures are not based on an independent assessment of the quality of higher
education. The government plans to designate the Academic Information Centre ([25]) as its independent national accreditation agency. It will be
included in the European Quality Assurance Register for Higher Education in 2018
at the latest, i.e. before the next big accreditation round, which is scheduled
for 2019. Moreover, the quality of academic staff will be improved by amendments
being drawn up to improve how professors’ qualifications are assessed. Under
the new compulsory criteria, professors will have to have a minimum number of international
publications and a sufficient knowledge of foreign language(s). 
 Graph 2.2.2:   Public expenditure per tertiary student as a share of GDP per capita (2011)* 
 *Measured in purchasing power standards (PPS), Latvia spent PPS EUR 5506 per student in 2011, compared with an EU average of PPS EUR 9947. This was only 25.7% of Latvian GDP per capita, while the EU-average was 40% Source: Eurostat, UOE database 
Overall, higher education reforms are
regaining some momentum. The success of reform depends
on proper control of the quality of education on offer, both in public and
private institutions, and on adequate funding to promote the system's
innovation capacity and internationalisation.  
The attractiveness of vocational
education and training and its apprenticeship component remain a challenge. Enrolment in vocational education and training -oriented upper
secondary school programmes is among the lowest in the EU. Eurobarometer
surveys ([26]) have shown
that vocational education and training has a poor image overall. For instance, the
proportion of people that agree with the statement that vocational education
and training provides high quality learning is well below the EU average. Tthe apprenticeship
component is insufficiently expanded. For example, a proper legislative
framework regulating relationships between the apprentice and company (e.g. on pay
and training requirements) and effective incentives for companies to provide
apprenticeships or practical training placements are missing.
While the consolidation of the vocational
education and training network is in its final stages, curricula reform needs more
work. Less than half of the profession standards,
planned modular programmes, and contents of the qualification exams have been
updated and the reform is due to continue out until 2023. In August 2014, the
government adopted amendments to the Vocational Education Law (to be approved
by parliament). In these, the role of sectoral expert councils in developing of
curricula, examination content and organising work-based learning is clearly
stated. The creation of new structures (convents) is foreseen to strengthen the
role of employers and other stakeholders in vocational education and training
governance. The amendments will also link vocational education and training
qualification levels to the national and European qualification levels. ([27]) The scope of work-based learning, piloted in 2013, will be
increased in 2015; however, the coverage is expected to remain insufficient.
Inadequate public funding in a fragmented
 research and innovation system is leading to poor scientific outcomes ([28]). An
adequate quality of the science base is a necessary precondition for improving cooperation
between businesses and academia, and for leveraging private investment. In that
context, the efficiency of public spending leaves clear room for improvement. Latvia
invested only around 0.6% of GDP in R&D in 2013 - the third lowest level in
the EU. Public R&D intensity reached only 0.43% of GDP in 2013 and remains
excessively dependent on EU structural funds.[29] Even though business R&D intensity increased slightly to 0.17%
of GDP in 2013, it remains clearly below the EU average of 1.29%. Co-operation
between businesses and academia remains very limited. 
 Graph 3.2.3:   R&D intensity projections, 2000-2020* 
 *The R&D intensity projections based on trends are derived from the average annual growth in R&D intensity for 2007-2012. (2) EU: The projection is based on the R&D intensity target of 3.0% for 2020. (3) LV: The projection is based on a tentative R&D intensity target of 1.5% for 2020. Source: European Commission DG Research and Innovation 
The authorities are in the process of reforming
the research and innovation system. Incentives have
been introduced for research institutions to merge in line with the Smart Specialisation
Framework. Following external evaluation of research performance, a new
institutional funding system is being introduced to allocate more resources to
institutions assessed as excellent at international level. Research
institutions have been requested to prepare medium-term strategies as a
precondition for public financing. The implementation plan of the Smart
Specialisation Framework and a clear monitoring mechanism, part of the ex-ante
conditionality for European Structural and Investment Funds, is due by July
2015. 
Competitiveness of the private sector is
hampered due to a lack of knowledge transfer policies and instruments: e.g. public-private partnerships, support systems such as clusters,
innovation vouchers, and technology transfer points. The economy is dominated
by small and medium-sized enterprises and Latvia remains specialised in sectors
with low and medium-low research intensity, such as metal processing and
machinery, wood products and food processing. However, the country is slowly developing
a more knowledge-intensive industrial sector. A corporate income tax incentive
to promote research and development spending was introduced in July 2014.  
Latvia has made some efforts to promote
innovation.  However, there is room for optimising
innovation structures and capacities on the basis of the Smart Specialisation Framework
and improve its innovation governance. According to the Innovation Union
Scoreboard 2014 ([30]), Latvia
ranks 27th among the EU-28 as regards innovation performance. Together
with Bulgaria and Romania, Latvia forms the so-called group of ''modest
innovators'' (innovation performance level less than 50% of the EU average).
Relatively few SMEs are involved in innovative activities (e.g. Latvia ranks 28th
among the EU-28 for the sales of new-to-market and new-to-firm innovations as %
of turnover and 26th for the contribution of high-tech and
medium-tech products to the trade balance as % of total exports plus imports of
products) ([31]).
Latvia's key challenges include a weak social security system and a
shrinking labour force. Low coverage and adequacy
of unemployment and social assistance benefits prevents effective action on
reducing poverty, social exclusion risks and the high degree of inequality.
Social assistance reforms are still at an early stage. Activation efforts for
social assistance beneficiaries remain limited and coverage of active labour
market measures is too low. Ensuring sustainable labour market integration of young
people, notably those with low levels of education and no work experience,
remains a challenge. A comprehensive career guidance system is lacking.
Social
protection 
Social expenditure has little impact on
poverty reduction due to overall low levels of spending ([32]) and the dominance of insurance-based benefitsAccording to national statistics, in 2013 . In 2014, around 32.7% of Latvia's
population were at risk of poverty or social exclusion and income inequality
remains among the highest in the EU ([33]). Single working parents are exposed to a high poverty risk. ([34]) Poverty rates for young adolescents and elderly show worrying
trends. ([35]) The growing
proportion of recipients of the low minimum pension ([36]) (11% of newly granted pensions in 2011 to 17% in 2013) requires
particular attention. The elderly are also the most exposed to the risk of
unmet medical care needs. The high level of housing deprivation ([37]) (38.3% in 2013; the 2nd highest in the EU) is also a cause
for concern. The depth of poverty is also high, thus underlining the need for
an effective social assistance. ([38]) 
The unemployment ([39]) and social assistance ([40]) benefits are characterized by poor benefit adequacy and coverage. The recent State Audit report identified serious flaws in the
social assistance system and its governance.
 Graph 2.3.1:   Non-coverage of social benefits* 
 *Proportion of 18-59 years old individuals living in jobless households at risk of poverty, whose total social transfers equal to less than 10% of disposable household income Source: European Commission 
The social assistance reforms have not
advanced since the country specific recommendation was made in 2011, although a significant amount of analytical and planning work has
been undertaken. In 2014, the authorities presented plans to increase the minimum
income level and revise its equivalence scales from 2017. ([41]) It is also planned to increase minimum unemployment benefits and
pensions, increase means-testing for state social benefits and reduce labour
taxes for low wage earners. Aside from the lengthy implementation timeline, the
planned changes would significantly increase several benefits, but are not
backed by budgetary plans. While the 2015 budget provides increases in social
protection expenditure ([42]), no
additional funding was allocated for social assistance. In September 2014,
Latvia launched a new social policy monitoring information system, which will
allow for improved monitoring of social benefits and social services. However,
it is too early to assess its impact on the quality of policy making.
Labour
market participation 
The main labour market indicators continue
to improve, against the backdrop of a shrinking labour force. At 70.6%, Latvia's employment rate for the people aged 20-64 is
slightly above the EU average. The unemployment rate has fallen sharply, but
remains above 10% in early 2015. In
the last ten years Latvia's population has decreased by 12%, which is the
second highest decrease in the EU after Lithuania's, as a result of low birth
rates ([43]), high death rates, and strong emigration.
([44]) Employment
rates have improved across all population groups; however there is scope for
increasing employment for elderly, people with disabilities ([45]) and people living in disadvantaged areas. Nominal unit labour cost
growth was 7.3% in 2013 and a cumulated growth over the past three years reached
10.5%. The high growth rate relative to other Member States reflects some
readjustment after a strong decline during the crisis period and is supported
by a stronger economic growth than elsewhere. 
 Graph 2.3.2:   Evolution of population and working age population, 2014-2050 (Index 2014=100) 
 Source: European Commission 
Preventing youth unemployment and its
negative long-term consequences is critical given the serious demographic
challenges. Youth unemployment rate ([46]) and number of young people not in employment, education or
training have decreased, but are still relatively high. Fewer than half of the
young people not in employment, education or training are registered with the public
employment services. ([47]) The supply of quality apprenticeships is insufficient. Youth
Guarantee measures have started slowly in 2014, but it is too early to
assess the number of quality offers for young people within a four month period.
Overall, awareness of the Youth Guarantee among target groups is low. Latvia is
preparing youth outreach measures to reach the young people not in employment,
education or training not registered at the Public employment service. This is
a new initiative and the fieldwork is expected to start in spring 2015. 
The provision of career guidance
services is weak ([48]) and fragmented. The incentives in the
provision of career guidance are not well aligned to ensure that the advice
provided is in the best interest of the students. Currently, the general
education schools that provide career guidance services have strong incentives
to keep the students in their school. There could be some risk that other
career options, such as vocational education and training, might not be
sufficiently explored.  
The financing and coverage of active
labour market policies remains low in comparison with other EU countries. In 2012, only 5.6 out of 100 persons wanting to work were covered
by active labour market policies ([49]), while only 2 out of 100 persons wanting to work were covered by
training programs. The funding for active labour market policies and training
of unemployed adults ([50]) has been reduced
for 2014 and 2015 faster than the decline in number of unemployed, while the
cost of most measures has gone up. Thus, the active labour market policy
coverage is expected to remain low. ([51]) The public works program has made up a large share of the
overall active labour market policy package; however, starting from 2015 the
program will be reduced. 
Bringing social assistance clients into
the labour market is a challenge due to inadequate cooperation between social
and other services. Many of the long-term
unemployed have poor health, addictions, low motivation and caring obligations,
which require flexible and innovative support programmes. A new programme for
the activation of the long-term unemployed is planned to be implemented in
2015, with an increased role for non-governmental organisations and
strengthened cooperation with social, healthcare and other services. 
The Latvian health system suffers from low
public financing and high out-of-pocket payments,
leaving a high proportion of the population with unmet healthcare needs. Both public
healthcare expenditure per capita and total healthcare expenditure are among
the lowest in the EU ([52]). At the
same time, a relatively low proportion of health expenditure is allocated to public
health, such as disease prevention programmes. 
 Graph 2.4.1:     Public health expenditure as % total health expenditure (EU average and percentiles 25, 75; LV) 
 Source: WHO Health for All Database 
Unmet needs for medical care for reasons
of costs are the highest among EU Member States. Moreover,
a relatively high incidence of bribes and informal payments is a cause for concern
as costs are already a significant barrier to equitable healthcare access. ([53]) Headline population health status indicators, such as life
expectancy, are low and high mortality rates among the working-age population
aggravate demographic challenges. The death rate at working age (i.e. between
20 and 64 years) is the second highest in the EU, giving rise to an estimated
3.9% reduction in Latvia’s workforce in 2012. ([54]) 
 Graph 2.4.2:   Self-reported unmet needs for medical examination by reason 
 Source: European Commission 
Additional funds were made available in
2014 to improve the accessibility of healthcare services, but this is unlikely to
translate into significant improvements. The
additional financing was used to slightly lower patient co-payments, reduce waiting
times for specialist consultation visits, finance additional oncology
diagnostics and laboratory examinations, and increase salaries of the lowest paid
healthcare personnel (mostly due to an increase in the minimum wage). The
Ministry of Health wants to further increase financing for outpatient services;
decrease co-payments for medicines and hospital care. It also wants to increase
the number of residency places, especially in rural areas; strengthen the
gatekeeping role of general practitioners; and implement e-health applications.
This would be in line with the Council recommendation. Also, the Public health strategy
for 2014-20, adopted in October 2014 is a step in the right direction.  
Adequate and stable medium-term financing
to address the challenges and speed up reforms in the healthcare system is not
guaranteed. Healthcare access for vulnerable groups
is restricted. Primary care and referral systems are not sufficiently
strong; clinical guidelines are not in place; waiting times for specialist
consultations and cancer diagnostics are relatively high; performance
incentives for general practitioners are insufficient; there is a lack of sickness
prevention and health promotion; a healthcare workforce strategy to address
ageing, shortages, low salaries and skills is not in place. At the same time,
there is scope for efficiency gains in hospital transfers, e.g. related to a diagnosis-related-group-based
financing system in hospitals and deployment of e-health applications. Also the
accountability and transparency of the management of hospitals is a matter of
concern. The infrastructure mapping exercise, to be elaborated by July 2015, could
be the basis for any decision on Structural Funds-financed infrastructure
investments.
After several delays, full electricity
retail market opening took place on 1 January 2015.
Twelve operators are now selling electricity, including four to households, and
some 0.5% of households have switched their electricity provider. Vulnerable
customers (around 100 000) will continue to profit from a regulated tariff.
Prices on the wholesale market in the Latvian-Lithuanian price zone are still on
average higher and less stable than in Estonia due to continued transmission congestions
on the Estonia-Latvia border and possible capacity reservation on Lithuania's
border with Belarus. The Transmission System Operators are starting to offer
more annual capacities, thus increasing market flexibility. 
The Swedish-Lithuanian interconnector
Nordbalt is expected to be completed in late 2015. This
could bring lower Swedish prices to the Latvian-Lithuanian price zone and
relieve congestion on the Estonian-Latvian connection. A positive price effect
may also come from the completion of the link between Lithuania and Poland in
2016. Construction works on Latvia's third electricity interconnection with
Estonia and the third stage of Kurzeme Ring electricity network connection are due
to commence in 2015. Work towards the synchronisation of the Baltic States
electricity flows with the rest of the Continental Europe Network is ongoing
and may require major financial resources. 
Latvia's 'emergent gas market' exemption
has expired and the relevant legislation to address obligations has been partly
put in place. As a first step, the Third Party
Access rules for the transmission grid and the Incukalns gas storage facility
need to be laid down in secondary legislation. Proposals for Third Party Access
rules and associated tariffs will need to be endorsed by the national
regulator. Third Party Access rules will partly determine to what extent the
Klaipeda LNG terminal can play a regional role). Latvia's exemption as an
isolated market still stands, so the Transmission System Operators unbundling
will need to be completed by April 2017. This will make the current monopoly's
transmission and distribution infrastructure accessible to potential new supplies.
The authorities will need to complete the legislation opening up the gas market
in 2015 so that Latvijas Gaze could start gradual unbundling from 2016. In
parallel, Incukalns gas storage infrastructure ownership and future storage
management issues will need to be settled.  
Latvia has delayed adoption of the
Energy Efficiency Law and implementation of the EU energy efficiency obligation
scheme. ([55]) There is little clarity and
significant delay as regards setting-up the proposed National Energy Efficiency
Fund to finance renovation of buildings. Also, the energy services market and energy
service companies' projects still need to be developed, as required by the
Directive 2012/27/EU. As regards renewable energy support, prolonged
uncertainty owing to the moratorium on the renewable energy support scheme has
a negative effect on investment decisions in this sector and may affect
prospects for meeting the national renewable energy support target of 40% by
2020. At the same time, decoupling the renewable energy support support scheme
from subsidies to fossil-fuel-based co-generation plants and bringing it in
line with the new State Aid rules could both - reduce the cost of scheme
considerably and increase security of supply through investments in additional renewable
energy support capacity in the heating sector.  
An increase in reuse and recycling could
improve resource efficiency. However, significant
investments in infrastructure, improvements in market instruments (extended
producer responsibility, taxation facilitating investment in line with the
waste hierarchy) and the regulatory framework are still needed to ensure
separate collection of certain waste streams and improve recycling rates,
including of biodegradable waste (composting). Even though municipal waste
generation in Latvia remained below the EU average ([56]), its main treatment option remains disposal in landfills ([57]). It is unlikely that Latvia will meet the 2020 50% recycling
target and the 2020 65% landfill diversion targets for biodegradable waste. 
 Graph 2.5.1:   Waste treatment methods 
 Source: European Commission 
Latvia's energy intensity is more than
double compared to the EU average, i.e. 328.6 vs.
143.2 kg of oil equivalent per EUR 1000 (2013 data). Greenhouse gas intensity
of 0.49 (Gg per million EUR of GDP) was also higher than the EU average of 0.35
and Latvia faces one of the highest deficits in energy trade balance (gas and
oil) ([58]), making
economy and households dependent on global energy prices. The residential
sector accounts for 34% of total energy consumption. Latvia has made some progress
in modernising its district heating networks and improving energy efficiency in
multi-apartments, as well as public and industrial buildings. However, the
scope for further energy savings remains significant; only around 2% of the
residential multi-apartment buildings have been heat-insulated ([59]). Latvia is planning to use all Emission Trading Scheme auctioning
revenues for domestic climate and energy related purposes.
Transport is the largest emitter of greenhouse
gases in Latvia, accounting for 26% of total emissions in 2012. The car fleet is dominated by second-hand cars, while new cars had
the highest CO2 emissions per km in the EU in 2013. Corporate passenger cars
continue to benefit from VAT deductibility for both their purchase price and
operating costs, including fuel. Overall, the measures in place do not appear
sufficient to significantly improve energy efficiency of the transport sector. The
Structural Funds financing for 2014-2020 will contribute to development of low
carbon transport, in particular public transport, electric vehicles charging
system and electrification of railway network that would considerably reduce
the CO2 emissions. ([60]) 
Some progress has been achieved on the Rail
Baltic European-gauge railway infrastructure project. In 2014, a political agreement was reached between the three Baltic
States and a joint venture was established in Riga. The project is subject to
funding from the Connecting Europe Facility. 
In 2014, around 45% of the road
transport infrastructure was in a poor or very poor condition. The number of road fatalities per 1 million inhabitants remains one
of the highest in the EU (provisionally, 102 compared to the EU average of 50
in 2014). Since the 2014-2020 road funding programme mostly relies on EU
funding, Latvia will need to develop a viable long-term financing mechanism
with additional national financing, including public-private partnerships. 
According to the 2014 World Bank study
on the performance of the three main Latvian ports,
the competitive position of the sector could be improved through better cost
and revenue management, more efficient land management, improved land
connectivity and supply chain functioning. However, the authorities have not
taken any significant measures in this regard.
Availability of modern connectivity
infrastructure is a key factor for growth. Latvia
ranks lowest in the EU for household broadband access in rural areas (41.4% vs.
the EU average 89.8%); nevertheless, 92% of households have Next Generation
Access (connections with the download speed of above 30Mbps). ([61]) 
The efficiency and quality of the
judicial system have improved in the past year, though challenges remain. Proposed amendments to civil and administrative procedural laws to
further expedite cases are not yet implemented. They would help ensuring proper
implementation of the insolvency law (accountability of insolvency
administrators). Also a comprehensive human resource policy linked to
professional evaluation of judges is not yet implemented, and there is room to strengthen
the role of the Judicial Council and court chairpersons in implementing
judicial reforms. There has been substantial progress on the reform of
arbitration courts ([62]) and
mediation. ([63]). 
The amended insolvency law that will enter
into force in March 2015 is expected to reduce the length of insolvency
proceedings. The time needed to resolve
administrative, civil and commercial cases has shortened ([64]) and the rate of resolving administrative cases remains high ([65]). However, the rate of resolving civil and commercial cases in first
instance courts has worsened compared to previous year, ([66]) creating a backlog. To address the problem, cases are being
redistributed more equally among courts. European Social Fund financing will be
allocated for raising competencies of court and judicial institutions' staff in
the 2014-2020 period.
The state-owned enterprise management
reform is key. It was promised to be in force by
early 2014 in the Eurogroup commitment letter of June 2013 in the context of
Latvia’s euro accession, after many delays during the EU-IMF financial
assistance programme 2009-2012. In order to comply with the OECD accession
requirements, the framework law was adopted in the final reading on 16 October
2014. The actual implementation, including the adoption of necessary secondary
legislation and modalities for establishing a centralised state-owned
enterprise manager within the State Chancellery is still due. Despite a new
instruction by the Cabinet of Ministers, there are doubts selection of boards
of directors of state-owned enterprises can be shielded from political
interference.
In 2014 a new Public Service Law was
submitted to the Parliament, defining common
standards for public sector hiring, career development, assessment, motivation
and training. However, local governments will be exempted and the changes may
face significant resistance in the Parliament. On the positive side, a
centralised selection of senior public officials is due to start from September
2015 and a consistent training strategy for civil servants and law enforcement
agencies is to be implemented from late 2015. 
Insufficient pay compared to the responsibilities
and private sector salaries result in high staff
rotation. Remuneration levels appear low for qualified staff in the public
sector, especially for senior level positions and thus pose a risk to modernise
and improve public administration capacities. In this context, retaining
talented and well-trained public servants after the end of the EU Presidency
will be a challenge. 
The Competition Council has proposed
amendments to the competition law to increase its institutional and financial
independence. The amendments could strengthen its
capacity to intervene effectively against anticompetitive behaviour, including
in state-owned enterprises, and to allow independent budgeting of the
institution similar to other regulators (financial, utilities regulators).
The supervising ministry ([67]) has so far
rejected the principle of greater institutional independence, but is more open
to allowing greater financial independence (for instance, allowing the Council
to keep some of the fees it collects, i.e. for mergers). This, however, may not
address the concerns raised in the country-specific recommendation on the
effectiveness and impartiality of the Competition Council. In particular, the
lack of institutional independence may impact the quality and scope of the Council's
work, including possible political interference with investigations of
anti-competitive actions or biased monitoring of state and municipal owned
enterprises. 
Internal tensions have destabilised the
work of the Corruption Prevention and Combating
Bureau. The guidelines for the prevention and combating of corruption
expired in 2013 and have not been renewed. The investigations of the Bureau
have focused on public procurement in construction and healthcare sectors that
are among the most vulnerable to corruption. ([68])   
The conflict-of-interest system for
public officials is complex and rigid and prioritises
formalistic compliance over assessing the merits of individual cases. ([69]) A legislative amendment has been adopted to strengthen the
follow-up on findings by the State Audit Office. ([70]) In the World Bank’s 2013 governance indicators, Latvia ranks 21st
among EU Member States on control of corruption.  
 2014 commitments || Summary assessment ([71]) 
 CSR 1: Preserve a sound fiscal position in 2014 and strengthen the budgetary strategy as of 2015, ensuring that the deviation from the medium-term objective remains limited to the impact of the systemic pension reform. Pursue efforts to further reduce the tax burden on low-income earners in the context of a shift towards more growth-friendly property and environmental taxes and by improving tax compliance and collection.     || Latvia has made some progress in addressing CSR 1 of the Council recommendation (this overall assessment of CSR 1 excludes an assessment of compliance with the Stability and Growth Pact): ·       Some progress in reducing labour taxation, but measures could be better targeted at low-income earners. ·       Limited progress in shifting taxation to other tax bases and environmental taxes. Subsidy for fuel used in agriculture was tightened Latvia still has a substantial potential to raise revenues from environmental and property taxation. ·       Some progress in improving tax compliance and combating shadow economy. 
 CSR 2: Step up implementation of the higher education reform, in particular through the establishment of an independent accreditation agency and a financing model that rewards quality. Provide career guidance at all education levels, improve the quality of vocational education and training, including by strengthening apprenticeship, and make progress in employability of young people including by putting in place outreach measures for non-registered youth not in employment education or training. Take steps for a more integrated and comprehensive research system also by concentrating financing towards internationally competitive research institutions.   || Latvia has made some progress in addressing CSR 2 of the Council recommendation: ·       Some progress in addressing higher education reforms: steps are taken to establish internationally-certified accreditation system and introduce new quality-promoting financing model. ·       Some progress in improving the quality of vocational education and training and its apprenticeship component. The vocational education and training curricula reform is in progress and some steps were made to strengthen vocational education and training governance, increase the role of employers and expand provision of work-based learning.  ·       Some progress in improving employability of young people, as most of the Youth Guarantee measures have started. Preparations for the young people not in employment, education or training-outreach project are underway. ·       Limited progress in providing career guidance: the plans to improve career guidance are at an early stage. ·       Some progress in introducing reforms of the public research organisations and research financing system. The government has launched plans to consolidate the research base and reform the financing of research performing institutions. However, it remains to be seen how this reform will be implemented and it needs adequate resources. 
 CSR 3: Reform social assistance and its financing further to ensure better coverage, adequacy of benefits, strengthened activation and targeted social services. Increase coverage of active labour market policies. Improve the cost-effectiveness, quality and accessibility of the healthcare system. || Latvia has made limited progress in addressing CSR 3 of the Council recommendation: ·       Limited progress in social assistance reform. Several studies and policy documents were prepared, but the implementation is uncertain. ·       Limited progress in activation and provision of targeted social services. A new programme targeting the long-term unemployed is to be launched.   ·       Limited progress in increasing the coverage and effectiveness of active labour market policies: e.g., funding and the number of participants involved in active labour market policis will decrease in 2015 compared to 2014. ·       Limited progress in improving cost-effectiveness, quality and accessibility of health care system. In general, there is a clear under-financing of the healthcare sector that negatively affects access to healthcare for vulnerable groups. 
 CSR 4: Accelerate the development of gas and electricity interconnections to neighbouring Member States to diversify energy sources and promote competition through improved integration of the Baltic energy markets. Pursue efforts to further increase energy efficiency in transport, buildings and heating systems. || Latvia has made some progress in addressing the CSR 4 of the Council recommendation: ·       Some progress in improving competition on the electricity and gas market: full opening of the electricity retail market from January 2015 and the first steps towards full gas market opening by 2017 (regulated third party access to infrastructure). With the completion of Klaipeda LNG terminal and two new regional electricity interconnectors in 2015 and 2016, the Baltic regional energy market will be stronger and energy supplies more diversified. ·       Some progress with adopting the new Energy Efficiency Law and putting in place energy efficiency obligation scheme to transpose the Directive (2012/27/EU); there is a persisting uncertainty as regards future renewable energy support framework. ·       Some progress in addressing energy efficiency in buildings, but limited effort to reduce greenhouse gas emissions in the transport sector (e.g., in 2013 Latvia's average CO2 emissions of new passenger cars were the highest in the EU). 
 CSR 5: Complete judicial reforms including the pending reforms of insolvency, arbitration and mediation frameworks to ensure a more business- and consumer- friendly legal environment. Step up public administration reforms, including by implementing state owned enterprise management reform and increasing institutional and financial independence of the Competition Council. || Latvia has made some progress in addressing the CSR 5 of the Council recommendation: ·       Substantial progress with improving mediation and arbitration frameworks. However, implementation of judicial reforms is still required, including amendments to civil and administrative code, comprehensive human resource policy. ·       Some progress in improving the insolvency regime; however finalisation of secondary legislation and further accountability of insolvency practitioners is warranted. ·       Limited progress in implementing public administration reforms, establishing a credible and de-politicised state owned enterprise management system and strengthening institutional and financial independence of the Competition Council.   
 Europe 2020 (national targets and progress) 
 Early school leaving target: 13.4% || The early school leaving rate was 9.8% in 2013. Girls perform better than boys: 5.8% against 13.6% in 2013. 
 Tertiary education target: 34-36% || The tertiary attainment rate was 40.7% in 2013. Women perform better than men: 53.1% against 28.3% in 2013. 
 R&D target: 1.5% of GDP || Latvia remains a long way from its R&D target and the current level of around 0.60% of GDP has not improved in the last years. Latvia will need to create new incentives and allocate more financing to progress towards Europe 2020 national target. 
 National Greenhouse gas (GHG) emissions: 17% in 2020 compared to 2005 (in non-ETS sectors) || According to the latest national projections, Latvia is expected to increase its non-ETS emissions by 18% in 2020, thus target may be missed by 1pp in 2020. 
 2020 Renewable energy target: 40% Share of renewable energy in all modes of transport: 10% || RES share in the final energy consumption in 2013: 36.5% (estimate). With a RES share in transport at 3.1% (2012) and limited measures for increasing the RES share, the binding 10% RES target may be unattainable. 
 Energy efficiency target: absolute level of energy consumption in 2020: Primary energy consumption 5.37 Mtoe; Final energy consumption 4.47 Mtoe || Energy consumption level in 2012: Primary energy consumption 4.4 Mtoe; Final energy consumption 4.0 Mtoe 
 Employment rate target set in the 2012 NRP: 73% || Employment rate around 70% in 2014. Latvia is on track to reach its EU2020 target.  
 Reduction of population at risk of poverty and/or living in jobless households: - 121 000 || Reduction of the number of people at-risk-of-poverty and/or living in jobless households per 1 000 was -140 in 2013. Latvia has reached its poverty target; the challenge will be to prevent it from increasing as economy grows. 
       Table B.1:       Macroeconomic indicators 
 Table B.2:       Financial market indicators 
 Table B.3:       Taxation indicators 
 Table B.4:       Labour market and social indicators 
Table continued
Table B.5:    Product market performance and policy
indicators
Table B.6:       Green growth
([1])  It represents a bulk of the unobserved
economy of 16% of GDP in 2012, as estimated by the Central Statistics Bureau.
Based on Putnins & Sauka, 2014, Shadow Economy Index for the Baltic
countries 2009-2013, non-registered employment is estimated to account for 4.2%
of GDP in 2013 and envelope wages for 9.5% out of the estimated shadow economy
of 23.8% of GDP.
([2])  Special Eurobarometer 402, Undeclared
Work in the European Union, 2013
([3])  In 2014, the ceilings to SSC were
introduced (EUR 48 600 in 2015), which is a regressive element on labour
taxation.
([4])  The SSC rate reduction was shared
between employee and employers with 0.5 pp. reduction for each, therefore a
direct gain for household disposable income was lower than for the PIT rate
reduction.
([5])  The 2014 social security rate reduction
cost some 0.3% of GDP and the 2015 personal income tax rate reduction some 0.2%
of GDP.
([6])  During the crisis, the PIT basic
allowance was reduced from around 20% of the average wage in 2009 to around 8%
in 2010 and has increased to around 10% in 2014. Compared with other flat tax
rate countries the basic allowance in Latvia is low. In 2013, the basic
allowance was 26% of the average wage in Lithuania, 15% in Estonia (expected to
increase to 16% in 2015) and 12% in Romania. 
([7])  For tax avoidance, formally employed
receive both the minimum wage and an unreported payment, for which no
labour taxes are paid. An increase in the minimum wage expands a share of
declared income and paid taxes.
([8])  According to the State Revenue Service.
([9])  Tax wedge for such person is 28%, due
to the combined employee and employer SSC rate of 34.1% of gross income.
([10]) VAT deductions for cars with GPS route
registration equipment amount to 100%, but without the GSP registration
deductions are limited to 80% and company car tax is paid.
([11]) Eunomia Research & Consulting with
Aarhus University, draft Study on Environmental Fiscal Reform Potential in 14
EU member States, 2015.
([12]) Standard rate for land and commercial property
is 1.5% and for residential property within a range of 0.2%-0.6% depending on
the value. The higher rate of 3% is applied to neglected buildings,
uncultivated land and from 2015 to unregistered buildings without construction permit.
([13]) Treaty on the Functioning of the
European Union (TFEU)
([14]) Net replacement rate at the average
wage is estimated to decline from around 71.9% in 2013 to 51.2% in 2053.
([15]) The Medium-Term Objective of a
structural deficit of 0.5% of GDP is set for the national budgetary framework,
while for the EU fiscal surveillance the MTO is defined as a structural
deficit of 1% of GDP.
([16]) See http://www.fiscalcouncil.lv/home.
There is no provision in the Fiscal Discipline Law that obliges the government
to formally respond to the Fiscal Council’s opinions; however the government
has done so.
([17])
Source: Eurostat, Labour productivity per hour worked.
([18]) Source: Eurofound 5th
Working Conditions Survey.
([19]) According to the European Working
Conditions Survey 2013, 63% of the companies in Latvia report such difficulties
against the EU average of 39%.
([20]) Country fiche: Mapping and Analysing
Bottleneck Vacancies in EU Labour Markets - Latvia (2014)
([21])
The Ministry of Economics; Informative report on midterm and long term labour
market forecasts, June 2014
([22]) See OECD
(2013), 2012 OECD Programme for International Student Assessment (PISA)
and Kangro A. et al. (2014), The Quality of Education in Latvian Schools in
International Comparison  
([23]) The Ombudsman
of Latvia: tiesibsargs.lv/files/content/Petijumi/Bilingvala%20izglitiba_2014.pdf

([24]) The World Bank (2014), Higher Education
Financing in Latvia.
([25]) The Academic Information Centre is in
charge of recognizing diplomas and professional qualifications and referencing
the national framework to the European qualifications framework.
([26]) Special Eurobarometer 369, Attitudes
towards vocational education and training, Published September 2011; Special
Eurobarometer 417, European Area of Skills and Qualifications, Published June
2014.
([27]) The 2014 reform that awards separate
diplomas for VET and general education could have ambiguous impacts on the
student performance in basic skills and calls for careful monitoring of the
impact.
([28]) Latvia has the lowest share of highly
cited scientific publications in EU-28.
([29]) In 2007-2013 EUR 452 million were
allocated to R&D, while in 2014-2020 it is planned to allocate EUR 467
million from the ERDF financing. 
([30]) 2014
Innovation Union Scoreboard, ec.europa.eu/enterprise/policies/innovation/files/ius/ius-2014_en.pdf
([31]) European Commission (2014), Research
and Innovation performance in Latvia 2014, http://ec.europa.eu/research/innovation-union/pdf/state-of-the-union/2014/countries/latvia.pdf

([32]) In 2012 Latvia's spending on social
protection at 14% of GDP was the lowest in the EU (EU: 29.5% of GDP)
([33]) At 0.35, Latvia's Gini coefficient was
the 2nd highest in the EU in 2013. The income quintile share ratios
(S20/S80) stood at 6.3 in 2013, the 4th highest value in the EU.
([34]) More than a quarter of working single
parents are exposed to at-risk of poverty, which is the third highest in the
EU.
([35]) For young adolescents it increased from
38.8% in 2010 to 47.7% in 2013 and for elderly (above 65) – from 33% in 2011 to
39.3% in 2014. 
([36]) The level of minimum pension depends on
the insurance period ranging from EUR 70 to 109.
([37]) Housing deprivation refers to
households with a leaking roof, damp walls, floor or foundation, rot in the
window frames or floor, no bath/shower and no indoor toilet.
([38]) The depth of poverty (or poverty gap)
provides information on how far off households are from poverty line  
http://ec.europa.eu/eurostat/statistics-explained/index.php/Glossary:At-risk-of-poverty_gap
([39]) In 2013 only 14% of unemployed were
entitled for unemployment benefits (the EU average 31%). Adequacy of
unemployment benefits measured as net replacement rate in sixth months of
unemployment was the 6th lowest in the EU. Source: EC calculations
based on EU-SILC data. 
([40]) Scientific
research: Latvia: “Who is Unemployed, Inactive or Needy? Assessing Post‐Crisis
Policy Options”, World Bank, 2013.
([41]) The minimum income level will be set at
40% of median equalised household income: around EUR 129 per month for a single
person, EUR 220 for two adult household and EUR 349 for a household of two
adults and two children
([42]) For example, to abolish sliding scale
ceilings for insurance-based benefits, that will mostly benefit higher income
households. There is also funding to increase family state benefits for second
and subsequent children and subsidize electricity costs. These measures are
more targeted and may contribute to reducing inflow into social assistance.
([43]) Total fertility
rate in Latvia at 1.44 is below the EU average of 1.58 in 2012. (Source
Eurostat)
([44]) On Emigration, see Hazans, Mihails
(2013), “Emigration from Latvia: Recent trends and economic impact”, in OECD,
Coping with Emigration in Baltic and East European Countries, OECD Publishing,
pages 96-97.
([45]) Employment rates range from above 33%
for persons with the least severe disability to 4.5% for people with severe
disabilities. (Source: Pamatnostādnes sociālo pakalpojumu attīstībai 2014.- 2020.gadam,
page 41)
([46]) In 3Q2014, seasonally-adjusted youth
unemployment rate was 20.3%. 
([47]) In the second quarter of 2014 there
were around 23000 young people not in employment, education or training, but
only 8700 where registered at the public employment services.
([48]) In 2013 only 36% of population had received
career guidance services while in education (EU average: 61%). (Special
Eurobarometer 417, June 2014)
([49]) Source:
Eurostat labour market policy participants per 100 persons wanting to work
(source: DG EMPL). 
([50]) National data
by the Ministry of Welfare in January 2015.
([51]) Although
national sources show higher ALMP coverage based on the number of registered
unemployed, the activation support as defined by labour market policy
participants per 100 wanting to work (EUROSTAT) has not changed much.
([52]) Health at a Glance:
Europe 2014, http://ec.europa.eu/
health/reports/docs/health_glance_2014_en.pdf
([53]) Special
Eurobarometer 397 on Corruption, February 2014, ec.europa.eu/public_opinion/archives/ebs/ebs_397_en.pdf.
[54])  Commission calculation based on Eurostat life table, 2012
([55]) To transpose Directive 2012/27/EU
([56]) 301 kg/y/inhabitant compared to around
487 kg on average in 2012, Eurostat data
([57]) 84% of municipal waste landfilled
against the EU average of 33%; only 12% was recycled and 4% composted (EU
average: 27% and 14%), Eurostat data
([58]) The trade deficit for energy products
in Latvia is 5.2% of GDP (significantly more than the EU average of 3.1%).
([59]) In 2014-2020, ERDF financing of EUR 247
million is allocated to promote energy efficiency in public and residential
buildings; EUR 31 million for municipal, buildings, EUR 32.6 million for
manufacturing sector, EUR 53 million to promote energy efficiency and use of
local RES in district heat supply.
([60]) In 2014-2020 ESIF investments in
environmentally friendly public transport: EUR 108.5 million, in electric
vehicles charging systems: EUR 7 million and in TEN-T railway development EUR
454 million.
([61]) Digital
Agenda Scoreboard 2014, ec.europa.eu/digital-agenda/en/digital-agenda-scoreboard
([62])
The Arbitration law came into
force in January 2015; it aims to strengthen conditions for establishment of
arbitration and the arbitrators' qualification requirements. There were still
more than a hundred arbitration courts registered in the Enterprise Register in
2014.
([63]) The law on Mediation entered into force
in June 2014.
([64]) From 302 days in 2012 to 202 days in
2013 for administrative cases. For civil and commercial cases, it slightly
shortened to 245 days in 2013. Source: The 2015 EU Justice Scoreboard
([65]) The rate of resolving administrative
cases in First Instance Courts amounted to 160.1% in 2013. Source: The 2015 EU
Justice Scoreboard
([66]) In 2012 it amounted to 111.2% while in
2013 it was only 94%. Source: The 2015 EU Justice Scoreboard
([67]) The Competition Council is set up as
governmental agency under the supervision of the Ministry of Economics and
submits quarterly reports of activities and expenditures.
([68]) 2014 EU Anti-Corruption Report,
http://ec.europa.eu / dgs/home-affairs/what-we-do/policies/organized-crime-and-human-trafficking/corruption/anti-corruption-report/docs/2014_acr_latvia_chapter_en.pdf
([69]) Council of Europe Group of States
against Corruption (GRECO),http://www.coe.int/t/dghl/monitoring/greco/evaluations/round4/GrecoEval4(2012)3_Latvia_EN.pdf
([70]) Amendments of the Law on Prevention of
Waste of Financial Means and Property of Public Entities, 13 March 2014,
http://likumi.lv/doc.php?id=265303
([71]) The following categories are used to
assess progress in implementing the 2014 CSRs of the Council Recommendation: No
progress: The Member State has neither announced nor adopted any measures
to address the CSR. This category also applies if a Member State has
commissioned a study group to evaluate possible measures. Limited progress:
The Member State has announced some measures to address the CSR, but these
measures appear insufficient and/or their adoption/implementation is at risk. Some
progress: The Member State has announced or adopted measures to address the
CSR. These measures are promising, but not all of them have been implemented
yet and implementation is not certain in all cases. Substantial progress:
The Member State has adopted measures, most of which have been implemented.
These measures go a long way in addressing the CSR. Fully addressed: The
Member State has adopted and implemented measures that address the CSR
appropriately.